Chesapeake Lodging Trust Results

RevPAR: 3.4% decrease for the 22-hotel portfolio and 3.4% decrease for the 15-hotel portfolio over the same period in 2016. Adjusted Hotel EBITDA Margin: 100 basis point decrease to 33.6% for the 22-hotel portfolio and 90 basis point decrease to 35.8% for the 15-hotel portfolio over the same period in 2016.

Disposition: Entered into a definitive agreement to sell the 222-room The Hotel Minneapolis, Autograph Collection for a sale price of $46.0 million.

“We are pleased with our results for the third quarter which were in line with the mid-point of our provided outlook despite negative impacts resulting from Hurricanes Harvey and Irma during the quarter. Outside of those markets specifically effected by the recent hurricanes, including Hurricane Nate which negatively effected our New Orleans hotels in early October, we believe operating fundamentals for the U.S. lodging industry remain stable and as a result, we expect our 14-hotel portfolio to resume growth in RevPAR in the fourth quarter,” said James L. Francis, Chesapeake Lodging Trust’s President and Chief Executive Officer.

Mr. Francis continued, “Our transformative renovation at the JW Marriott San Francisco Union Square remains on track with completion expected in December 2017 and we are encouraged by the positive guest feedback we have been receiving on the new room product. Between this renovation and those completed earlier in the year at both the Denver Marriott City Center and the Boston Marriott Newton, we believe our hotel portfolio is well positioned for outperformance relative to the U.S. lodging industry in 2018.”

CONSOLIDATED FINANCIAL RESULTS

The following is a summary of the consolidated financial results for the three and nine months ended September 30, 2017 and 2016 (in millions, except share and per share amounts):

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Total revenue

$

158.3

$

164.5

$

455.6

$

474.6

Net income available to common shareholders

$

14.1

$

23.5

$

38.9

$

57.3

Net income per diluted common share

$

0.24

$

0.40

$

0.65

$

0.97

Adjusted Hotel EBITDA

$

53.1

$

57.0

$

146.1

$

159.6

Adjusted Corporate EBITDA

$

48.9

$

52.9

$

132.3

$

145.6

AFFO available to common shareholders

$

37.7

$

42.1

$

100.2

$

112.0

AFFO per diluted common share

$

0.64

$

0.71

$

1.69

$

1.90

Weighted-average number of diluted common shares outstanding

59,287,812

58,928,433

59,244,803

58,894,529

HOTEL OPERATING RESULTS

During 2017, the Trust expects the following seven of its 22 hotels to be negatively effected as a result of (1) the expected negative impact on lodging demand in San Francisco resulting from the temporary closure and expansion of the Moscone Center and/or (2) significant guestroom renovations undergoing during the year: Le Meridien San Francisco, JW Marriott San Francisco Union Square, Hyatt Centric Fisherman’s Wharf, Hotel Adagio San Francisco, Autograph Collection, Boston Marriott Newton, Denver Marriott City Center, and Hyatt Regency Mission Bay Spa and Marina. As such, the Trust is reporting key operating metrics for a 15-hotel portfolio in addition to the 22-hotel portfolio. Included in the following table are comparisons of the key operating metrics for the 22-hotel portfolio and the 15-hotel portfolio for the three and nine months ended September 30, 2017 and 2016 (in thousands, except for ADR and RevPAR):

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

Change

2017

2016

Change

22-Hotel Portfolio

Occupancy

88.5

%

88.8

%

(30) bps

83.9

%

85.2

%

(130) bps

ADR

$

226.10

$

233.19

(3.0)%

$

224.57

$

229.20

(2.0)%

RevPAR

$

200.12

$

207.12

(3.4)%

$

188.46

$

195.34

(3.5)%

Adjusted Hotel EBITDA

$

53,123

$

56,983

(6.8)%

$

146,067

$

159,631

(8.5)%

Adjusted Hotel EBITDA Margin

33.6

%

34.6

%

(100) bps

32.1

%

33.6

%

(150) bps

15-Hotel Portfolio

Occupancy

88.5

%

88.3

%

20 bps

85.5

%

84.9

%

60 bps

ADR

$

220.66

$

228.81

(3.6)%

$

219.67

$

225.06

(2.4)%

RevPAR

$

195.29

$

202.12

(3.4)%

$

187.78

$

191.18

(1.8)%

Adjusted Hotel EBITDA

$

32,427

$

34,747

(6.7)%

$

92,602

$

98,319

(5.8)%

Adjusted Hotel EBITDA Margin

35.8

%

36.7

%

(90) bps

35.1

%

36.1

%

(100) bps

Hotel EBITDA, Adjusted Hotel EBITDA, Adjusted Hotel EBITDA Margin, Corporate EBITDA, Adjusted Corporate EBITDA, FFO, FFO available to common shareholders and AFFO available to common shareholders are non-GAAP financial measures within the meaning of the rules of the Securities and Exchange Commission. See the discussion included in this press release for information regarding these non-GAAP financial measures.

CAPITAL MARKETS ACTIVITY

On July 17, 2017, the Trust redeemed all 5,000,000 shares of its issued and outstanding 7.75% Series A Cumulative Redeemable Preferred Shares at a redemption amount of $25.00 per share, plus accrued and unpaid dividends, with a borrowing under its revolving credit facility.

DISPOSITION ACTIVITY

On November 2, 2017, the Trust announced that it had entered into a definitive agreement to sell the 222-room The Hotel Minneapolis, Autograph Collection located in Minneapolis, Minnesota for a sale price of $46.0 million, or approximately $207,000 per key, subject to customary working capital pro-rations at closing. Completion of the proposed sale is expected within the next 30 days, subject to customary closing requirements and conditions.

DIVIDENDS

On July 14, 2017, the Trust paid dividends in the amounts of $0.40 per share to its common shareholders and $0.484375 per share to its preferred shareholders, both of record as of June 30, 2017. On September 18, 2017, the Trust declared a dividend in the amount of $0.40 per share payable to its common shareholders of record as of September 29, 2017. The dividend was paid on October 13, 2017.

2017 OUTLOOK

The Trust is updating its 2017 outlook to incorporate its second quarter results, recent trends and fundamentals, the redemption of its 7.75% Series A Cumulative Redeemable Preferred Shares, and the pending sale of The Hotel Minneapolis, Autograph Collection. The outlook assumes no future acquisitions, additional dispositions, or financing transactions (in millions, except RevPAR and per share amounts):

Fourth Quarter 2017

Outlook

Low

High

CONSOLIDATED:

Net income available to common shareholders

$

15.5

$

17.5

Net income per diluted common share

$

0.26

$

0.29

Adjusted Corporate EBITDA

$

37.1

$

39.3

AFFO available to common shareholders

$

28.1

$

30.0

AFFO per diluted common share

$

0.47

$

0.51

Corporate cash general and administrative expense

$

2.3

$

2.5

Corporate non-cash general and administrative expense

$

1.8

$

1.8

Weighted-average number of diluted common shares outstanding

59.3

59.3

HOTEL PORTFOLIO(1):

21-Hotel Portfolio

Comparable RevPAR

$

174.00

$

178.00

Comparable RevPAR change as compared to 2016

(1.0

)%

1.0

%

Comparable Adjusted Hotel EBITDA

$

40.8

$

43.0

Comparable Adjusted Hotel EBITDA Margin

29.3

%

30.3

%

Comparable Adjusted Hotel EBITDA Margin change as compared to 2016

(100) bps

0 bps

14-Hotel Portfolio

Comparable RevPAR

$

178.00

$

181.00

Comparable RevPAR change as compared to 2016

0.0%

2.0

%

Comparable Adjusted Hotel EBITDA

$

26.9

$

28.3

Comparable Adjusted Hotel EBITDA Margin

33.3

%

34.3

%

Comparable Adjusted Hotel EBITDA Margin change as compared to 2016

(25) bps

75 bps

_____________

(1)

The Trust uses the term “comparable” to refer to metrics that include only those hotels owned for the entirety of the two periods being compared. Since The Hotel Minneapolis, Autograph Collection, is under contract to be sold with completion of the proposed sale expected in Q4 2017, it has been excluded in the updated outlook for the hotel portfolio metrics for Q4 and full year 2017.

Full Year 2017

Updated Outlook

Previous Outlook

Low

High

Low

High

CONSOLIDATED:

Net income available to common shareholders

$

54.1

$

56.0

$

45.3

$

49.8

Net income per diluted common share

$

0.91

$

0.95

$

0.77

$

0.84

Adjusted Corporate EBITDA

$

169.4

$

171.5

$

169.0

$

174.3

AFFO available to common shareholders

$

128.2

$

130.2

$

127.8

$

132.3

AFFO per diluted common share

$

2.16

$

2.20

$

2.16

$

2.24

Corporate cash general and administrative expense

$

10.4

$

10.6

$

10.5

$

11.3

Corporate non-cash general and administrative expense

$

7.5

$

7.5

$

7.5

$

7.5

Weighted-average number of diluted common shares outstanding

59.3

59.3

59.1

59.1

HOTEL PORTFOLIO(1):

21-Hotel Portfolio

Comparable RevPAR

$

186.00

$

187.00

Comparable RevPAR change as compared to 2016

(2.8

)%

(2.3

)%

Comparable Adjusted Hotel EBITDA

$

184.4

$

186.6

Comparable Adjusted Hotel EBITDA Margin

31.5

%

31.7

%

Comparable Adjusted Hotel EBITDA Margin change as compared to 2016

(140) bps

(115) bps

14-Hotel Portfolio

Comparable RevPAR

$

188.00

$

189.00

Comparable RevPAR change as compared to 2016

(1.0

)%

(0.5

)%

Comparable Adjusted Hotel EBITDA

$

117.1

$

118.4

Comparable Adjusted Hotel EBITDA Margin

34.9

%

35.1

%

Comparable Adjusted Hotel EBITDA Margin change as compared to 2016

(70) bps

(45) bps

_____________

(1)

The Trust uses the term “comparable” to refer to metrics that include only those hotels owned for the entirety of the two periods being compared. Since The Hotel Minneapolis, Autograph Collection, is under contract to be sold with completion of the proposed sale expected in Q4 2017, it has been excluded in the updated outlook for the hotel portfolio metrics for Q4 and full year 2017.

NON-GAAP FINANCIAL MEASURES

The Trust reports the following eight non-GAAP financial measures that it believes are useful to investors as key measures of its operating performance: (1) Hotel EBITDA, (2) Adjusted Hotel EBITDA, (3) Adjusted Hotel EBITDA Margin, (4) Corporate EBITDA, (5) Adjusted Corporate EBITDA, (6) FFO, (7) FFO available to common shareholders and (8) AFFO available to common shareholders. Reconciliations of these non-GAAP financial measures to the most comparable GAAP measure are included in the accompanying financial tables.

Hotel EBITDA – Hotel EBITDA is defined as net income before interest, income taxes, depreciation and amortization, air rights amortization, corporate general and administrative, and hotel acquisition costs. The Trust believes that Hotel EBITDA provides investors a useful financial measure to evaluate the Trust’s hotel operating performance, excluding the impact of the Trust’s capital structure (primarily interest), the Trust’s asset base (primarily depreciation and amortization), and the Trust’s corporate-level expenses (corporate general and administrative and hotel acquisition costs).

Adjusted Hotel EBITDA – The Trust further adjusts Hotel EBITDA for certain additional recurring and non-recurring items. Specifically, the Trust adjusts for non-cash amortization of intangible assets and liabilities, including ground lease assets and unfavorable contract liabilities, deferred franchise costs, and deferred key money, all of which are recurring items, and gain (losses) from sales of real estate, which is a non-recurring item. The Trust believes that Adjusted Hotel EBITDA provides investors with another useful financial measure to evaluate the Trust’s hotel operating performance, excluding the effect of these items.

Corporate EBITDA – Corporate EBITDA is defined as net income before interest, income taxes, and depreciation and amortization. The Trust believes that Corporate EBITDA provides investors a useful financial measure to evaluate the Trust’s operating performance, excluding the impact of the Trust’s capital structure (primarily interest expense) and the Trust’s asset base (primarily depreciation and amortization).

Adjusted Corporate EBITDA – The Trust further adjusts Corporate EBITDA for certain additional recurring and non-recurring items. Specifically, the Trust adjusts for hotel acquisition costs and non-cash amortization of intangible assets and liabilities, including air rights contracts, ground lease assets and unfavorable contract liabilities, deferred franchise costs, and deferred key money, all of which are recurring items, and gains (losses) from sales of real estate, which is a non-recurring item. The Trust believes that Adjusted Corporate EBITDA provides investors with another financial measure of its operating performance that provides for greater comparability of its core operating results between periods.

FFO – The Trust calculates FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (NAREIT), which defines FFO as net income (calculated in accordance with GAAP), excluding depreciation and amortization, impairment charges of depreciable real estate, gains (losses) from sales of real estate, the cumulative effect of changes in accounting principles, and adjustments for unconsolidated partnerships and joint ventures. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most industry investors consider presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. By excluding the effect of depreciation and amortization and gains (losses) from sales of real estate, both of which are based on historical cost accounting and which may be of lesser significance in evaluating current performance, the Trust believes that FFO provides investors a useful financial measure to evaluate the Trust’s operating performance.

FFO available to common shareholders – The Trust reduces FFO for preferred share dividends, write-off of issuance costs of redeemed preferred shares, and dividends declared on and earnings allocated to unvested time-based awards (consistent with adjustments required by GAAP in reporting net income available to common shareholders and related per share amounts). FFO available to common shareholders provides investors another financial measure to evaluate the Trust’s operating performance after taking into account the interests of holders of the Trust’s preferred shares and unvested time-based awards.

AFFO available to common shareholders – The Trust further adjusts FFO available to common shareholders for certain additional recurring and non-recurring items that are not in NAREIT’s definition of FFO. Specifically, the Trust adjusts for hotel acquisition costs and non-cash amortization of intangible assets and liabilities, including air rights contracts, ground lease assets and unfavorable contract liabilities, deferred franchise costs, and deferred key money, all of which are recurring items, and the write-off of issuance costs of redeemed preferred shares, which is a non-recurring item. The Trust believes that AFFO available to common shareholders provides investors with another financial measure of its operating performance that provides for greater comparability of its core operating results between periods.

ABOUT CHESAPEAKE LODGING TRUST

Chesapeake Lodging Trust is a self-advised lodging real estate investment trust (REIT) focused on investments primarily in upper-upscale hotels in major business and convention markets and, on a selective basis, premium select-service hotels in urban settings or unique locations in the United States. The Trust owns 22 hotels with an aggregate of 6,694 rooms in nine states and the District of Columbia.

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

57,252

55,797

Air rights contract amortization

390

390

Deferred financing costs amortization

1,248

1,409

Gain on sale of hotel

—

(598

)

Share-based compensation

5,671

7,150

Other

(465

)

(642

)

Changes in assets and liabilities:

Accounts receivable, net

(8,825

)

(11,209

)

Prepaid expenses and other assets

(1,907

)

585

Accounts payable and accrued expenses

5,089

4,605

Other liabilities

173

(33

)

Net cash provided by operating activities

107,259

122,013

Cash flows from investing activities:

Disposition of hotel

—

2,028

Improvements and additions to hotels

(41,952

)

(17,562

)

Change in restricted cash

1,960

(810

)

Net cash used in investing activities

(39,992

)

(16,344

)

Cash flows from financing activities:

Redemption of preferred shares

(125,000

)

—

Borrowings under revolving credit facility

300,000

175,000

Repayments under revolving credit facility

(250,000

)

(215,000

)

Proceeds from issuance of unsecured term loan

225,000

—

Proceeds from issuance of mortgage debt

—

150,000

Principal prepayments on mortgage debt

—

(122,220

)

Scheduled principal payments on mortgage debt

(134,435

)

(7,847

)

Payment of deferred financing costs

(1,771

)

(935

)

Payment of dividends to common shareholders

(72,168

)

(70,842

)

Payment of dividends to preferred shareholders

(7,320

)

(7,266

)

Repurchase of common shares

(1,065

)

(194

)

Net cash used in financing activities

(66,759

)

(99,304

)

Net increase in cash

508

6,365

Cash and cash equivalents, beginning of period

43,060

50,544

Cash and cash equivalents, end of period

$

43,568

$

56,909

The following table reconciles net income to Hotel EBITDA, Adjusted Hotel EBITDA, and Adjusted Hotel EBITDA Margin for the 22-hotel portfolio for the three and nine months ended September 30, 2017 and 2016:

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Net income

$

18,953

$

25,947

$

48,633

$

64,559

Add: Interest expense

9,020

8,122

24,989

23,892

Income tax expense

1,590

162

1,470

1,982

Depreciation and amortization

19,369

18,703

57,252

55,797

Air rights contract amortization

130

130

390

390

Corporate general and administrative

4,216

4,074

13,798

14,074

Hotel EBITDA

53,278

57,138

146,532

160,694

Less: Non-cash amortization(1)

(155

)

(155

)

(465

)

(465

)

Gain on sale of hotel

—

—

—

(598

)

Adjusted Hotel EBITDA

$

53,123

$

56,983

$

146,067

$

159,631

Total revenue

$

158,277

$

164,529

$

455,612

$

474,571

Adjusted Hotel EBITDA Margin

33.6

%

34.6

%

32.1

%

33.6

%

The following table reconciles net income to Corporate EBITDA and Adjusted Corporate EBITDA for the three and nine months ended September 30, 2017 and 2016:

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Net income

$

18,953

$

25,947

$

48,633

$

64,559

Add: Interest expense

9,020

8,122

24,989

23,892

Income tax expense

1,590

162

1,470

1,982

Depreciation and amortization

19,369

18,703

57,252

55,797

Corporate EBITDA

48,932

52,934

132,344

146,230

Less: Non-cash amortization(1)

(25

)

(26

)

(76

)

(76

)

Gain on sale of hotel

—

—

—

(598

)

Adjusted Corporate EBITDA

$

48,907

$

52,908

$

132,268

$

145,556

The following table reconciles net income to FFO, FFO available to common shareholders, and AFFO available to common shareholders for the three and nine months ended September 30, 2017 and 2016:

Three Months Ended

September 30,

Nine Months Ended

September 30,

2017

2016

2017

2016

Net income

$

18,953

$

25,947

$

48,633

$

64,559

Add: Depreciation and amortization

19,369

18,703

57,252

55,797

Less: Gain on sale of hotel

—

—

—

(598

)

FFO

38,322

44,650

105,885

119,758

Less: Preferred share dividends

(430

)

(2,422

)

(5,274

)

(7,266

)

Write-off of issuance costs of redeemed preferred shares

(4,419

)

—

(4,419

)

—

Dividends declared on unvested time-based awards

(124

)

(146

)

(371

)

(435

)

Undistributed earnings allocated to unvested time-based awards

—

—

—

—

FFO available to common shareholders

33,349

42,082

95,821

112,057

Add: Write-off of issuance costs of redeemed preferred shares

4,419

—

4,419

—

Less: Non-cash amortization(1)

(25

)

(26

)

(76

)

(76

)

AFFO available to common shareholders

$

37,743

$

42,056

$

100,164

$

111,981

FFO per common share:

Basic

$

0.56

$

0.72

$

1.62

$

1.91

Diluted

$

0.56

$

0.71

$

1.62

$

1.90

AFFO per common share:

Basic

$

0.64

$

0.72

$

1.70

$

1.91

Diluted

$

0.64

$

0.71

$

1.69

$

1.90

The following table reconciles forecasted net income to Hotel EBITDA, Adjusted Hotel EBITDA, and Adjusted Hotel EBITDA Margin for the 21-hotel portfolio for the three months and year ending December 31, 2017: